It took Boris Johnson to come up with the quote on this particular matter. The EU wants to impose harsh rules indeed on bankers’ bonuses, and we are told this will lead to a flight to other lands such as Switzerland – until the Swiss people voted for even harsher rules that is. Then again, the EU plan could be construed as trying to create more shareholder democracy. Truth be told, the arguments on both side of this debate are compelling. Who is right?
I very much appreciated the way the ‘Sunday Times’ described Boris Johnson’s comment on the latest development in the bankers’ bonuses saga. The EU wants to cap bankers’ bonuses to no more than 100 per cent of salary – unless shareholders provide overwhelming support for a more generous bonus package. Mr Johnson slated the idea. This is how the ‘Sunday Times’ put it: “Boris Johnson, London Mayer… said: ‘This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire.’”
I just loved the way the paper felt the need to explain who Boris Johnson is, but not Diocletian. It reminds me of those instructions you get, you know, they go into minute detail about how to open the box, and then skate over the bit that is hard to understand.
Maybe it would have been more appropriate to say Boris Johnson, who studied classics at Oxford, said: “This is … the most deluded measure…from Europe….since Diocletian (a former Roman Emperor who tried but failed to tackle inflation via price controls) tried to fix the price of groceries across the Roman Empire.”
Truth be told, the classics scholar wastes no opportunity to demonstrate to the rest of us how very clever, but also, it has to be said, how funny he is. On this occasion, cerebral preening aside, he has a point.
As a general rule I prefer bonuses to salary. Bonuses are a variable cost, they can be turned on and off like a tap. Theoretically, if a company makes lots of money bonuses rise, vice versa if they fall. Bonuses are a way of linking staff remuneration to how much money a company has at any one time, and from a company’s point of view that has to be a good thing. I appreciate that with banks it didn’t work like that and bonuses were paid after banks were bailed out, but that surely is evidence of a problem with the formulae by which bonuses were calculated, not evidence that the idea of a bonus worth more than 100 per cent of salary is bad.
But, and this is where it gets worrisome, the EU plan will also be applied to staff working for a bank registered in the EU, but working outside the region. So, for example, staff in Singapore will have their pay set by a formulae designed in Brussels, or Strasburg, or wherever these things are determined. That strikes me as one or perhaps both of the following: an attempt by the EU to undermine the strength of the City, or a form of imperialism, in which European ideas are forced upon other countries.
On the other hand, within a few hours of the EU’s plan breaking, media comment warned about a flight of bankers from London to Switzerland. Then just a few days later, 68 per cent of Swiss voted to give shareholders the final say over executive pay, and whether a company can offer a golden hello or goodbye. This is not a measure aimed solely at banks, rather at corporates in general, but we know banks are the main target.
Banks could, of course, relocate to the US, Singapore or Hong Kong. Maybe HSBC will. But then as far as relocating to the US is concerned, the debate on taxation and rules on pay is even more hysterical than in the EU. You get nutters on the right arguing the problem with the US is too much tax, even though US taxation receipts to GDP is not much in excess of a post war low, and then they argue at a time when the US is becoming dangerously unequal the country needs more inequality.
In any case, what the EU is really doing, as indeed are the Swiss, is trying to promote shareholder democracy. Why is that such a bad idea? I am sure that not even Mr Johnson will be able to cite an example of a Roman Emperor who tried that idea.
But above all, there is something about some aspects of corporate pay I don’t like. It does, in my view, smack of arrogance. How much difference do the people at the top of banks really make? Is it really the case that there aren’t other people out there, who couldn’t do the job with sufficient training? Did you ever see that film ‘Trading Places’ with Dan Aykroyd and Eddie Murphy? A commodities broker (Aykroyd) and homeless hustler (Murphy) changed places, after Aykroyd’s bosses bet they could take a man from the streets and turn him into a successful trader. You won’t be surprised to learn that in the film Murphy was indeed a big success in his new role.
I would love to see that experiment played out for real. I suspect that that there may be a germ of truth in the proposition presented in the film.
Some pay awards have become obscene. I suggest that if Wayne Rooney was paid less to kick a football he would still kick a football. In the world of football I don’t think the labour markets have acted in the best interests of football fans. I am not sure, that, as far as bankers’ pay is concerned, they act in the best interests of the majority of people who make up an economy either.
Something has to be done, and at least the EU – albeit in a way strewn with errors – is trying.
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees